The Direction of Causality between Blockholder Ownership and Firm Value: US and EU Evidence

Torben Pedersen, Steen Thomsen, Hans Kurt Kvist

    Research output: Working paperResearch

    Abstract

    We examine the causal relationship between blockholder ownership (measured by the fraction of shares controlled by large shareholders) and firm value (measured as the simple Tobin's Q) of the largest EU and US companies. Using Granger causality tests we find no significant causal effects either way in the US/UK, but in continental Europe we find a negative effect of blockholder ownership on firm value and a negative effect of firm value on blockholder ownership. Consistent with an overall non-linear relationship, as hypothesised by Morck, Shleifer and Vishny (1988) and Stultz (1988), the negative effect of blockholder ownership on firm value performance is found to be significant only for companies with high initial levels of blockholder ownership (>10%), but significant for companies with low initial levels. Consistent with lower rotection of minority investors and larger private benefits of control (Shleifer and Vishny, 1997) the causal relationships are only significant in continental Europe, even for high initial levels of blockholder ownership.
    Original languageEnglish
    Place of PublicationFrederiksberg
    PublisherDepartment of International Economics and Management, Copenhagen Business School
    Number of pages39
    Publication statusPublished - 2001
    SeriesWorking Paper / Department of International Economics and Management, Copenhagen Business School
    Number16-2001

    Keywords

    • Blockholder ownership
    • Firm value
    • Granger causality
    • System effects
    • Panel data analysis

    Cite this

    Pedersen, T., Thomsen, S., & Kvist, H. K. (2001). The Direction of Causality between Blockholder Ownership and Firm Value: US and EU Evidence. Frederiksberg: Department of International Economics and Management, Copenhagen Business School. Working Paper / Department of International Economics and Management, Copenhagen Business School, No. 16-2001
    Pedersen, Torben ; Thomsen, Steen ; Kvist, Hans Kurt. / The Direction of Causality between Blockholder Ownership and Firm Value : US and EU Evidence. Frederiksberg : Department of International Economics and Management, Copenhagen Business School, 2001. (Working Paper / Department of International Economics and Management, Copenhagen Business School; No. 16-2001).
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    abstract = "We examine the causal relationship between blockholder ownership (measured by the fraction of shares controlled by large shareholders) and firm value (measured as the simple Tobin's Q) of the largest EU and US companies. Using Granger causality tests we find no significant causal effects either way in the US/UK, but in continental Europe we find a negative effect of blockholder ownership on firm value and a negative effect of firm value on blockholder ownership. Consistent with an overall non-linear relationship, as hypothesised by Morck, Shleifer and Vishny (1988) and Stultz (1988), the negative effect of blockholder ownership on firm value performance is found to be significant only for companies with high initial levels of blockholder ownership (>10{\%}), but significant for companies with low initial levels. Consistent with lower rotection of minority investors and larger private benefits of control (Shleifer and Vishny, 1997) the causal relationships are only significant in continental Europe, even for high initial levels of blockholder ownership.",
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    Pedersen, T, Thomsen, S & Kvist, HK 2001 'The Direction of Causality between Blockholder Ownership and Firm Value: US and EU Evidence' Department of International Economics and Management, Copenhagen Business School, Frederiksberg.

    The Direction of Causality between Blockholder Ownership and Firm Value : US and EU Evidence. / Pedersen, Torben; Thomsen, Steen; Kvist, Hans Kurt.

    Frederiksberg : Department of International Economics and Management, Copenhagen Business School, 2001.

    Research output: Working paperResearch

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    Pedersen T, Thomsen S, Kvist HK. The Direction of Causality between Blockholder Ownership and Firm Value: US and EU Evidence. Frederiksberg: Department of International Economics and Management, Copenhagen Business School. 2001.